10-Q 1 sun_10q-123106.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2006 COMMISSION FILE NUMBER: 000-791 SUN MOTOR INTERNATIONAL, INC. WYOMING 84-0217330 Block B, G/F., Prince Industrial Building, 106 King Fuk Street, San Po Kong, Kowloon, Hong Kong (852) 2321 6108 Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Large accelerated filer ( ) Accelerated filer ( ) Non-accelerated filer (X) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ( ) No (X) As of December 31, 2006, the issuer had 29,440,067 shares of common stock, par value USD0.01 per share, outstanding. SUN MOTOR INTERNATIONAL, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED DECEMBER 31, 2006 INDEX Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of December 31, 2006 (unaudited) and March 31, 2006 3 Condensed Consolidated Statements of Operations for the nine month periods ended December 31, 2006 and 2005 (unaudited) 4 Condensed Consolidated Statements of Cash Flows for the nine month periods ended December 31, 2006 and 2005 (unaudited) 5 Notes to Condensed Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosure About Market Risks 14 Item 4. Controls and Procedures 14 PART II. OTHER INFORMATION Item 6. Exhibits 15 SIGNATURES 16 2 SUN MOTOR INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS DECEMBER 31, MARCH 31, 2006 2006 (UNAUDITED) (AUDITED) USD USD ---------- ---------- ASSETS Current assets Cash and cash equivalents 290,159 525,990 Restricted short-term bank deposits 3,494,264 3,282,664 Accounts receivable, net of allowance for doubtful accounts of USD233,373 as of December 31, and March 31, 2006 12,559,493 10,407,547 Inventories, net (Note 6) 13,044,005 10,908,979 Prepayments, deposits and other receivables 2,903,497 2,257,734 Promissory note receivable - current portion 750,617 1,094,542 Income tax recoverable 37,891 38,194 Deferred tax assets 40,469 40,469 Amounts due from related companies 17,525 8,381 Amount due from a director 109,154 108,870 Amount due from ultimate holding company 126,009 126,009 ---------- ---------- Total current assets 33,373,083 28,799,379 Property, plant and equipment, net 14,815,972 14,363,265 Deposits for acquisition of property, plant and equipment 35,449 35,449 Promissory note receivable -non-current portion 2,260,340 2,412,698 Deferred tax assets 258,509 258,509 ---------- ---------- Total assets 50,743,353 45,869,300 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable 13,100,633 8,928,238 Accrued expenses and other payables 3,077,933 3,953,379 Amount due to related companies 35,160 35,160 Dividend payable 184,615 184,615 Current maturities of bank borrowings 14,026,903 13,498,256 Current maturities of capital lease obligations 704,825 765,374 Income tax payable 231,105 31,813 ---------- ---------- Total current liabilities 31,361,174 27,396,835 Capital lease obligations, less current maturities 635,625 938,430 Bank borrowings, less current maturities 1,611,529 1,338,532 Deferred tax liabilities 2,080,544 2,080,544 ---------- ---------- Total liabilities 35,688,872 31,754,341 ---------- ---------- Minority interests 230,736 228,795 ---------- ---------- Stockholders' equity Common stock (Note 7) 294,401 294,401 Additional paid-in-capital 917,327 917,327 Other comprehensive income 19,774 19,774 Retained profits 13,592,243 12,654,662 ---------- ---------- Total stockholders' equity 14,823,745 13,886,164 ---------- ---------- Total liabilities and stockholders' equity 50,743,353 45,869,300 ========== ========== See the accompanying notes to unaudited condensed consolidated financial statements 3 SUN MOTOR INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, --------------------------- --------------------------- 2006 2005 2006 2005 (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) USD USD USD USD Total net sales 14,725,095 13,438,942 45,536,984 42,594,628 Cost of sales (11,642,608) (10,205,174) (35,505,173) (33,008,301) ----------- ----------- ----------- ----------- Gross profit 3,082,487 3,233,768 10,031,811 9,586,327 Depreciation and amortization (78,108) (87,959) (241,612) (259,953) Selling, general and administrative expenses (2,472,211) (2,351,435) (7,898,016) (7,151,965) ----------- ----------- ----------- ----------- Operating income 532,168 794,374 1,892,183 2,174,409 Other (loss)/income (119,749) 49,562 265,787 124,487 Interest expense (361,673) (305,086) (1,019,155) (725,011) ----------- ----------- ----------- ----------- Income before income tax 50,746 538,850 1,138,815 1,573,885 Income tax expenses (Note 4) (23,887) (94,299) (199,290) (275,430) Minority interests (1,194) 660 (1,941) (1,743) ----------- ----------- ----------- ----------- Net income 25,665 445,211 937,584 1,296,712 =========== =========== =========== =========== Basic and diluted income per share (Note 5) 0.001 0.015 0.032 0.045 =========== =========== =========== =========== See the accompanying notes to unaudited condensed consolidated financial statements 4 SUN MOTOR INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED DECEMBER 31, ------------------------- 2006 2005 (UNAUDITED) (UNAUDITED) USD USD Cash flows from operating activities: Net cash generated from/(used in) operating activities 1,803,202 (2,615,523) Cash flows from investing activities: Net cash used in investing activities (2,740,836) (1,932,993) Cash flows from financing activities: Net cash generated from financing activities 701,803 4,282,017 ---------- ---------- Net decrease in cash and cash equivalents (235,831) (266,499) Cash and cash equivalents, beginning of period 525,990 364,600 ---------- ---------- Cash and cash equivalents, end of period 290,159 98,101 ========== ========== See the accompanying notes to unaudited condensed consolidated financial statements 5

SUN MOTOR INTERNATIONAL, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements of the Company and its subsidiaries (the "Group") have been prepared in accordance with generally accepted accounting principles for interim condensed consolidated financial information and with the instruction to Form 10-Q and Regulation S-X. Accordingly, they do not include all the information and notes necessary for comprehensive consolidated financial statements. In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary to a fair statement of the results for the three-month and nine-month periods have been made. Results for the interim period presented are not necessarily indicative of the results that might be expected for the entire fiscal year. These condensed consolidated financial statements should be read in conjunction with consolidated financial statements and the notes thereto included in the Company's Form 10K/A as filed with the Securities and Exchange Commission on September 14, 2006. 2. DESCRIPTION OF BUSINESS The Company is engaged in the designing and manufacturing of various types of micro motors for toys, electrical appliances, office equipment, automobile accessories, camera, Digital Video Disc ("DVD") and Moving Picture Experts Group Audio Layer 3 ("MP3") player. The customers are mainly located in Japan, Taiwan, Europe, the United States of America & Canada, and the People's Republic of China (the "PRC"). Details of geographic information are presented in note 9. 6 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION These condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company balances and transactions are eliminated in consolidation. USE OF ESTIMATES In preparing these condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. These accounts and estimates include, but are not limited to, the valuation of accounts receivable, inventories, deferred income taxes and the estimation on useful lives of property, plant and equipment. Actual results could differ from those estimates. ACCOUNTS RECEIVABLE The Company extends unsecured credit to customers in the normal course of business and believes all accounts receivable in excess of the allowances for doubtful accounts to be fully collectible. If accounts receivable in excess of the provided allowance are determined uncollectible, they are charged to expense in the year that determination is made. The Company does not accrue interest on trade accounts receivable. Accounts receivable are due 30 to 180 days after the invoice date. INVENTORIES Inventories are valued at the lower of cost or market with cost determined on a weighted average basis. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to physical properties are capitalized. Depreciation and amortization are provided using the straight-line method over the estimated useful lives at the following annual rates:- Land Over the term of the lease Buildings 2% Building improvements 20% Machinery and equipment 10% - 20% REVENUE RECOGNITION Revenues are recognized upon shipment of product, at which time title of goods has been transferred to the buyer. 7 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes". This interpretation provides recognition thresholds and measurement of a tax position taken or expected to be taken in a tax return. This interpretation is effective for fiscal years beginning after December 15, 2006. In September 2006, the FASB issued SFAS No. 157 "Fair Value Measurement". SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This Statement shall be effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including any financial statements for an interim period within that fiscal year. The provisions of this statement should be applied prospectively as of the beginning of the fiscal year in which this statement is initially applied, except in some circumstances where the statement shall be applied retrospectively. The FASB released SFAS No. 158 "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans: an amendment of FASB Statements No. 87, 88, 106, and 132(R) " which requires an employer to recognize the over funded or under funded status of defined benefit and other postretirement plans as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through an adjustment to comprehensive income. This statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. In September 2006, the SEC issued SAB No. 108, which provides guidance on the process of quantifying financial statement misstatements. In SAB No. 108, the SEC staff establishes an approach that requires quantification of financial statement errors, under both the iron-curtain and the roll-over methods, based on the effects of the error on each of the Company's financial statements and the related financial statement disclosures. SAB No. 108 is generally effective for annual financial statements in the first fiscal year ending after November 15, 2006. The transition provisions of SAB No. 108 permits existing public companies to record the cumulative effect in the first year ending after November 15, 2006 by recording correcting adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings. The Company is currently evaluating the effect of FASB Interpretation No. 48, SFAS No.157, SFAS No.158 and SAB No. 108 on its financial statements. 4. INCOME TAX EXPENSES Income tax expenses represent the sum of current and deferred taxes, calculated at 17.5% on the estimated assessable profits of subsidiaries operating in Hong Kong. 8 5. NET INCOME PER SHARE The basic and diluted net income per share is calculated using the net income and the weighted average number of shares outstanding during the reporting period. THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ---------------------------- --------------------------- 2006 2005 2006 2005 (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) ------------ ------------ ------------ ------------ Net income USD25,665 USD445,211 USD937,584 USD1,296,712 ============ ============ ============ ============ Weighted average number of shares outstanding 29,440,067 28,251,439 29,440,067 28,251,439 ============ ============ ============ ============ Basic and diluted income per share USD0.001 USD0.015 USD0.032 USD0.045 ============ ============ ============ ============

6. INVENTORIES Inventories consist of the following: AT DECEMBER 31, AT MARCH 31, 2006 2006 (Unaudited) (Audited) USD USD ----------- ----------- Raw materials 9,970,094 8,302,395 Work in progress 964,006 602,252 Finished goods 2,378,869 2,273,296 ----------- ----------- 13,312,969 11,177,943 Less: Allowance for obsolete stock (268,964) (268,964) ----------- ----------- 13,044,005 10,908,979 =========== =========== 7. COMMON STOCK NO. OF SHARES AMOUNT USD Authorized:- 2,000,000 Preferred stock, no par value 2,000,000 -- 50,000,000 Common stock, USD0.01 par value 50,000,000 500,000 ============ ============ Issued and outstanding:- Preferred stock - none issued and outstanding as of December 31, 2006 and March 31, 2006 -- -- Common stock issued and outstanding as of December 31, 2006 and March 31, 2006 29,440,067 294,401 ============ ============ 9 8. CREDIT FACILITIES Credit facilities were utilized as follows at the end of the periods: DECEMBER 31, MARCH 31, 2006 2006 (Unaudited) (Audited) USD USD ------------ ------------ Bills payable and trust receipt loans 10,160,808 8,317,207 Bank overdrafts 3,866,095 3,568,316 Bank borrowings 1,611,529 2,951,265 Capital lease obligations 1,340,450 1,703,804 ------------ ------------ 16,978,882 16,540,592 ============ ============ 9. SEGMENT INFORMATION The Company solely designs, manufactures, sells and distributes micro motors of different functions and features, and they are used for toys, electrical appliances, office equipment, automobile accessories, camera, DVD and MP3 player. The Company has two reportable segments Alternating Current ("AC") and Direct Current ("DC") motors, based on manufacturing processes. Information for the two segments is disclosed under FAS 131, "Disclosures about Segments of an Enterprise and Related Information" as below: - THREE MONTHS END DECEMBER 31, 2006 (Unaudited) AC MOTOR DC MOTOR TOTAL ENDED DECEMBER 31, ENDED DECEMBER 31, ENDED DECEMBER 31, ------------------------ ------------------------ ------------------------ 2006 2005 2006 2005 2006 2005 ---------- ---------- ---------- ---------- ---------- ---------- USD USD USD USD USD USD Revenue from external Customers 7,395,701 6,047,524 7,329,394 7,391,418 14,725,095 13,438,942 Bank Interest Income 15,620 9,047 15,481 11,057 31,101 20,104 Interest Expense 181,651 137,288 180,022 167,797 361,673 305,085 Depreciation 335,746 255,747 439,650 448,790 775,396 704,537 Segment Profit 29,699 155,937 50,137 264,613 79,836 420,550 Expenditure for segment assets 396,187 443,574 515,361 718,494 911,548 1,162,068 ========== ========== ========== ========== ========== ========== NINE MONTHS END DECEMBER 31, 2006 (Unaudited) AC MOTOR DC MOTOR TOTAL YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------ ------------------------ ------------------------ 2006 2005 2006 2005 2006 2005 ---------- ---------- ---------- ---------- ---------- ---------- USD USD USD USD USD USD Revenue from external Customers 20,713,754 16,647,048 24,823,230 25,947,580 45,536,984 42,594,628 Bank Interest Income 41,012 15,541 48,013 23,413 89,025 38,954 Interest Expense 465,743 287,523 553,412 437,488 1,019,155 725,011 Depreciation 995,847 773,312 1,304,327 1,358,165 2,300,174 2,131,477 Segment Profit 324,768 514,239 548,257 872,623 873,025 1,386,862 Expenditure for segment assets 1,224,507 1,047,479 1,592,844 1,696,689 2,817,351 2,744,168 ========== ========== ========== ========== ========== ========== SEGMENT ASSETS AC MOTOR DC MOTOR TOTAL DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31, ------------------------ ------------------------ ------------------------ 2006 2006 2006 2006 2006 2006 (UNAUDITED) (AUDITED) UNAUDITED) (AUDITED) (UNAUDITED) (AUDITED) USD USD USD USD USD USD ---------- ---------- ---------- ---------- ---------- ---------- SEGMENT ASSETS 21,485,337 16,617,581 28,668,459 28,671,287 50,153,796 45,288,868 ========== ========== ========== ========== ========== ==========

10 A reconciliation is provided for unallocated amounts relating to corporate operations which is not included in the segment information. Total consolidated revenue THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, --------------------------- -------------------------- 2006 2005 2006 2005 ----------- ----------- ----------- ----------- Total consolidated revenue 14,725,095 13,438,942 45,536,984 42,594,628 =========== =========== =========== =========== Total profit for reportable segments 79,836 420,550 873,025 1,386,862 Unallocated amounts relating to operations: - Interest income from a director 4,075 22,922 23,874 56,056 Other income (33,165) 95,378 241,916 130,967 ----------- ----------- ----------- ----------- TOTAL: 50,746 538,850 1,138,815 1,573,885 =========== =========== =========== ===========

AT DECEMBER 31, AT MARCH 31, 2006 2006 ---------- ---------- (UNAUDITED) (AUDITED) USD USD Total assets for reportable segments 50,153,796 45,288,868 Amount due from a director 109,154 108,870 Amount due from ultimate holding company 126,009 126,009 Deferred tax assets 298,978 298,978 Other 55,416 46,575 ---------- ---------- TOTAL: 50,743,353 45,869,300 ========== ========== Long-lived assets with net book value of USD13,772,699 and USD13,319,992 are located in the PRC and USD1,043,273 and USD1,043,273 are located in Hong Kong at December 31, 2006 and March 31, 2006, respectively, Geographic information about the revenues, which are classified based on location of the customers, is set out as follows: - THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------------- ------------------------- 2006 2005 2006 2005 ---------- ---------- ---------- ---------- Japan 6,451,991 6,044,650 19,362,157 18,435,817 Taiwan 3,657,719 3,684,498 11,751,443 11,614,845 PRC 385,638 316,375 1,136,063 957,800 Europe 1,383,480 955,766 4,254,866 3,084,131 USA & Canada 1,142,875 920,353 3,384,082 2,728,005 Other 1,703,392 1,517,300 5,648,373 5,774,030 ---------- ---------- ---------- ---------- TOTAL: 14,725,095 13,438,942 45,536,984 42,594,628 ========== ========== ========== ========== 10. PENSION PLANS The Group participates in a defined contribution pension scheme under the Mandatory Provident Fund Schemes Ordinance ("MPF Scheme") for all of its eligible employees in Hong Kong. The MPF Scheme is available to all employees aged 18 to 64 with at least 60 days of service in the employment in Hong Kong. Contributions are made by the Group's subsidiary operating in Hong Kong at 5% of the participants' relevant income with a ceiling of HKD20,000. The participants are entitled to 100% of the Group's contributions together with accrued returns irrespective of their length of service with the Group, but the benefits are required by law to be preserved until the retirement age of 65. As stipulated by the PRC government regulations, the Group's subsidiary operating in the PRC is required to contribute to the PRC insurance companies organized by the PRC Government which are responsible for the payments of pension benefits to retired staff. The monthly contribution was equal to 28.5% of the salaries of the staff. The Group has no obligation for the payment of pension benefits beyond the annual contributions described above. The assets of the schemes are controlled by trustees and held separately from those of the Group. Total pension cost was USD60,541 and USD43,630 during the nine months ended December 31, 2006 and 2005 respectively. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW We were incorporated under the laws of the State of Wyoming on February 23, 1973. Between April 2004 and the close of the reverse acquisition described below, we had insignificant assets and had not generated significant revenues. On June 15, 2005, Bestip Development International Limited ("Bestip"), an international business company organized under the laws of the British Virgin Islands, completed the reverse acquisition of our company, pursuant to which we acquired all of the outstanding capital shares of Bestip in exchange for a controlling interest in our company (the "Reorganization"). Pursuant to the Securities Purchase Agreement and Plan of Reorganization dated May 2, 2005 by and among our company, Bestip and the shareholders of Bestip, at the closing of the Purchase Agreement, the shareholders of Bestip transferred to us all of the outstanding capital shares of Bestip in exchange for our issuance of 28,000,000 shares of our common stock to the shareholders of Bestip (representing approximately 95% of our total capital stock outstanding after giving effect to its acquisition of Bestip). As a result of the Reorganization, Bestip became our wholly-owned subsidiary. Bestip was incorporated in the British Virgin Islands on April 26, 1994 by Mr. Simon Shi as the investment holding company of the Sun Motor Technology group of companies ("Sun Motor"). Sun Motor designs, manufactures and markets micro motors for a wide range of applications including automobile components, home appliances, power tools, multimedia, personal care, and business equipment. Its clients include several European and US based multinational corporations. On June 24, 2005, we filed with the Securities and Exchange Commission a Current Report on Form 8-K that disclosed, among other things, the audited financial statements of Bestip as of and for the fiscal years ended March 31, 2004 and 2003, and the unaudited balance sheet of Bestip as of December 31, 2004 and unaudited statements of income and cash flows for the nine months then ended. On July 11, 2005, we filed a definitive information statement with the Securities and Exchange Commission in connection with a proposed amendment to our articles of incorporation to change our name to "Sun Motor International,Inc." Since the stockholders of Bestip acquired approximately 95% of our issued and outstanding common shares and the Bestip management team and board of directors became the management team and board of directors of our company, according to FASB Statement No. 141 - "Business Combinations," this acquisition has been treated as a recapitalization for accounting purposes, in a manner similar to reverse acquisition accounting. In accounting for this transaction: o Bestip is deemed to be the purchaser and surviving company for accounting purposes. Accordingly, its net assets are included in our balance sheet at their historical book values and the results of operations of Bestip have been presented for the comparative prior period; and o Control of the net assets and business of Wyoming Oil & Minerals, Inc. was acquired effective June 15, 2005. This transaction has been accounted for as a purchase of the assets and liabilities of Wyoming Oil & Minerals, Inc. by Bestip. The historical cost of the net liabilities assumed was $0. 12 FORWARD LOOKING STATEMENTS The statements contained in this report that are not historical are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including statements, without limitation, regarding the Company's expectations, beliefs, intentions or strategies regarding the future. The Company intends that such forward-looking statements be subject to the safe-harbor provided by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, the Company's expected revenue and earnings growth and estimates regarding the size of target markets. These statements are qualified by important factors that could cause the Company's actual results to differ materially from those reflected by the forward-looking statements. Such factors include but are not limited to: (1) the Company's ability to obtain development financing as and when needed, (2) continued profitable operations; (3) the market's acceptance of products and services; (4) significant competition from other micro motor OEM companies and technologies, and (5)the Company's ability to protect its intellectual property. These statements, and other forward looking statements, are not guarantees of future performance and involve risks and uncertainties. Except as required by law, we do not undertake any obligation to update or keep current either (i) any forward-looking statement to reflect events or circumstances arising after the date of such statement, or (ii) the important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking statement. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2006 COMPARED TO DECEMBER 31, 2005 Net sales for the three months ended December 31, 2006 totaled $14.7 million compared to $13.4 million for the three months ended December 31, 2005, representing a 9.5% increase. The increase in net sales is a combination of increased sale prices and the number of motor unit sales. Cost of sales for the three months ended December 31, 2006 totaled $11.6 million, or 79% of net sales, compared to $10.2 million, or 75.9% of net sales, for the three months ended December 31, 2005. The increase was a result of increases of raw material costs in this quarter. Our gross margin for the quarter ended December 2006 was 20.9% compared to 24.1% in the quarter ended December 2005. The decrease was a result of increase of raw material costs. Selling, general and administrative expenses increased slightly by $120,776 for the three months ended December 31, 2006 to $2.5 million from $2.4 million for the same prior year period. Selling, general and administrative expenses as a percentage of total net sales decreased to 16.8% for the three months ended December 31, 2006 compared to 17.5% for the prior year period. The decrease was a result of increase in productivity and improvement in material resource planning and supply chain logistics. Other income decreased from $49,562 during the three months ended December 31, 2005 to loss of $119,749 for the period ended December 31, 2006. The loss is the result of write off of the management service charges between the Company and Zhao Qing Plant and the exchange difference between Renminbi (`RMB') and US Dollars). The write off is a one time non-recurring transaction. Interest expense and capital lease charges increased by $56,587 or 18.5% to $361,673 for the quarter ended December 31, 2006 from $305,086 for the same prior period. The increase was a result of high usage of bank facilities to finance working capital and commitments. Net income decreased for the three months ended December 31, 2006 to $25,665 from $445,211 for the same prior year period. The Company was able to increase its unit sale prices and to reduce expenses by raising productivity. However, the gains were offset by increases in raw material costs and the written off of the management service charges and related US/RMB exchange difference . 13 FOR THE NINE MONTHS ENDED DECEMBER 31, 2006 COMPARED TO DECEMBER 31, 2005 Net sales for the nine months ended December 31, 2006 increased by $ 2.9m to $45.5 million compared to $42.6 million for the nine months ended December 31, 2005, representing an increase of 6.9%. The increase in net sales is a combination of increased sale prices and the number pf motor unit sales. Cost of sales for the nine months ended December 31, 2006 totaled $35.5 million, or 77.9% of net sales, compared to $33 million, or 77.5% of net sales, for the nine months ended December 31, 2005. Raw material costs recorded material increases but continuous improvement in productivity produced savings which helped to offset certain portion of increased raw material costs. Our gross margin for the nine months ended December 2006 was 22.0% compared to 22.5% of the same prior year period. The modest decrease was a result of combination of gains from higher selling prices and cost savings from increase in productivity lessen by the impacts from increase of raw material costs. Selling, general and administrative expenses increased by $746,051 for the nine months ended December 31, 2006 to $7.9 million from $7.2 million for the same period of the prior year. Selling, general and administrative expenses as a percentage of total net sales increased to 17.3% for the nine months ended December 31, 2006 compared to 16.7% for the prior year period. The increase was mainly due to increased usage of air flight to deliver time critical shipments during the previous quarters. Other income increased by $141,300 to $ 265,787 for the nine months ended December 31, 2006 from $124,487 for the same period ended December 31, 2005. The increase was mainly due to the combined result of increase in sale of metal scraps and in interest income on bank deposits pledged as collateral for secured banking facilities. Interest expense and capital lease charges increased by $294,144 or 40.6% to $1,019,155 for the nine months ended December 31, 2006 from $725,011 for the same prior period. The increase was a result of the combination of high interest rate and high usage of bank facilities to finance working capital and commitments. Net income decreased by $359,128 for the nine months ended December 31, 2006 to $937,584 or 2.1% of net sales from $1,296,712 or 3.0% of net sales for the same prior period. LIQUIDITY AND CAPITAL RESOURCES The Company had a working capital surplus of $2.0 million as of December 31, 2006. As of December 31, 2006, the Company had available from financial institutions short term revolving banking facilities (overdrafts and letters of credit), term loans and lease financing of $14.4 million, $1.5 million and $1.3 million, respectively. The Company receives many new customers' enquires. The management believes that there are many new growth opportunities, especially demand for micro motors from the car component sector. However, the Company will need additional working capital, in addition to our existing cash and cash equivalents and cash generated by operations, to finance its business growth. In this connection, the Company is seeking to raise additional funds. But no assurance can be given that such funds will be available, or if available, the terms thereof. The Company had positive cash flow from operating activities in the nine months ended December 31, 2006. This is a combined result of effective cost control, increase in productivity and increase in unit sale price and unit sales. The Company continued to reinvest to expand the Company production capability so that it can continue to improve the quality of its products and, at the same time, develop more new high margin products. This also reflected the management confidence in its future prospects. Cashflow from investing activities increased to $ 2,740,836 from $ 1,932,993 of the prior year period. These investing activities are funded by mainly cashflow generated from operating activites. Therefore, cashflow from financing activities was down to $ 701,803 from $ 4,282,017 of the same prior year period. The overall result for the nine months ended December 31,2006 was an increase in cash and cash equivalent to $ 290,159 or 196 % from $ 98,101 of the same prior year period. 14 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not have any market risk with respect to such factors as commodity prices, equity prices, and other market changes that affect market risk sensitive investments. With respect to foreign currency exchange rates, a devaluation or fluctuation of the HK dollar against the US dollar would affect the Company's results of operations, financial position and cash flows, when presented in US dollars (based on the current exchange rate) as compared to HK dollars. As the Company's debt obligations are primarily short-term in nature. However, to the extent that the Company arranges new borrowings in the future, an increase in market interest rates would cause a commensurate increase in the interest expense related to such borrowings. ITEM 4. CONTROLS AND PROCEDURES We maintain a system of controls and procedures designed to provide reasonable assurance as to the reliability of the financial statements and other disclosures included in this report. As of December 31, 2006, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officers, management evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that material information required to be included in its periodic filings with the Securities and Exchange Commission is accumulated processed summarized and reported within the required time periods and is communicated to our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure. There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 15 PART II. OTHER INFORMATION ITEM 6. EXHIBITS EXHIBITS The following is a list of exhibits filed or incorporated by reference into this Report: Exhibit 2 Securities Purchase Agreement and Plan of Reorganization by and among Wyoming Oil & Minerals, Inc., and Bestip Development International Limited, an international business company organized under the laws of the British Virgin Islands, dated May 2, 2005.(1) Exhibit 3.1 Articles of Incorporation of Wyoming Coal Corporation as filed with the Wyoming Secretary of State effective February 23, 1973.(2) Exhibit 3.2 Articles of Amendment to the Articles of Incorporation of Wyoming Coal Corporation as filed with the Wyoming Secretary of State effective March 5, 1974.(2) Exhibit 3.3 Articles of Amendment to the Articles of Incorporation of Wyoming Coal Corporation as filed with the Wyoming Secretary of State effective August 18, 1981.(2) Exhibit 3.4 Articles of Amendment to the Articles of Incorporation by Shareholders of Wyoming Oil & Minerals, Inc. as filed with the Wyoming Secretary of State effective February 18, 2000.(2) Exhibit 3.5 By-laws of Wyoming Oil & Minerals, Inc., as amended.(2) Exhibit 3.6 Articles of Amendment to the Articles of Incorporation by Shareholders of Wyoming Oil & Minerals, Inc.(3) Exhibit 31.1 Section 302 Certification --- Chief Executive Officer(4) Exhibit 31.2 Section 302 Certification --- Chief Financial Officer(4) Exhibit 32.1 Section 906 Certification --- Chief Executive Officer & Chief Financial Officer(4) (1) Filed as an Exhibit to the Company's Form 8-K May 2, 2005 and incorporated herein by reference. (2) Filed as an Exhibit to the Company's Registration Statement on Form S-8 filed on March 8, 2000, SEC File No. 333-31936 and incorporated herein by reference. (3) Filed as an Exhibit to the Company's Information Statement on Schedule 14C filed on July 11, 2005 and incorporated herein by reference. (4) Filed with this Report. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Sun Motor International, Inc. (Registrant) Date: February 14, 2007 By: /s/ Simon Shi ---------------------------- Simon Shi, Chief Executive Officer By: /s/ Patrick Lim ---------------------------- Patrick Lim, Chief Financial Officer 17

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